Paving the way for the private sector in Egypt

 

Paving the way for the private sector

 

 

By Ahmed Kamel

 

Marking a cornerstone step to pave the way for the private sector to play a bigger role in the economy, two companies affiliated with the army will be sold to private investors. Minister of Planning and Economic Development and Chairman of the Sovereign Fund of Egypt, Hala al-Saeed, has revealed that the National Company for Producing and Bottling Natural Water (Safi) and Wataniya Petroleum will be auctioned for the private sector.

The two firms are currently owned and run by the Armed Forces through its arm, the National Service Products Organization (NSPO). The minister revealed stakes in other military-held companies would be auctioned in cooperation with NSPO.

What does the announcement mean from an economic perspective? First of all, it highlights the state’s well-established intention to boost free enterprise and offer the private sector more space. From an economic viewpoint, there are two levels concerning the announcement: the macroeconomic landscape and the microeconomic environment.

From the macroeconomic viewpoint, the move simply means that the state is determined to continue its economic reform program, which was launched in November 2016. The sale of army-held firms is deemed to be a true beginning of structural reforms, which are fundamental to complete the economic reform program launched four years ago.

It means that the state is taking serious steps on the ground to streamline the role of the state in the economy. By all means, this is a crucial step to cement economic liberalization by opening the door for private investors to invest, own and run state-owned enterprises (SOEs).

In fact, structural reforms can be considered a means to an good end. While a bigger role of the private sector will enhance governance in the medium term, it will invigorate sustainable economic growth in the long run.

At the microeconomic level, the announcement should bolster competition on the market. In a liberal economy, the state is a regulator not a producer. The state is fair judge and a supervisor and shouldn’t be engaged in any business activity. It is more like a soccer game, where the referee cannot be a footballer scoring goals. This is the bottom line of economic liberalization.

The sale of SOEs, via initial public offerings (IPOs) on the stock market or private placement to investors, is the core of structural reforms. The ultimate objective is to boost governance in a bid to improve the business climate.

Basically, structural reforms are all about the empowerment of the private sector, which should be the main generator of investment, jobs and production in a liberal economy. The floating of stakes in army-held firms, and SOEs in general, is the first step on the right track.